Asia continues to lag other regions for integrating ESG principles with investing; better data and stronger regulatory requirements will help institutional investors, market observers say.
Andreas Neuber, Seoul-based CEO and chairman of the JVÆs board of directors, says this culminates in a three-year entry strategy for UBS. He joined UBS in Zurich in 2004 to run institutional and wholesale sales in Europe. He moved to Hong Kong in early 2006 to oversee the firmÆs acquisition of Standard CharteredÆs asset management business in India. In August 2006 he moved to Seoul to spearhead the firmÆs market entry. He reports to Christof Kutscher, Tokyo-based managing director and Asia-Pacific head for UBS Global Asset Management.
The firm has been keen to enter South Korea because of the marketÆs size, second in the region only to Japan, and initially considered all options, from a solo greenfield to an outright acquisition. It came to realise that its best strategy was to work closely with a domestic partner. ôOver time we found the market different from any others that we as a firm have experienced,ö Neuber says.
These characteristics include a rapidly changing regulatory environment, as the government attempts to position Seoul as a financial hub, which requires locals with an ear to the ground; the reliance upon personal relationships to drive business and the need for a well-known brand; and the paucity of English speakers.
Dimco is one of KoreaÆs oldest fund managers, with a history extending back to 1962. Typical of the industry, it has been controlled (and until now 100% owned) by a securities firm û the old Daehan Investment & Securities which, in the current reshuffling of Korean financial institutions, is now called Hana Daetoo Securities. This is technically the JV partner with UBS. It is one of four businesses directly beneath the Hana Financial Group umbrella, along with an insurance company, an investment bank and a commercial bank.
The business was an attractive partner to UBS because of its roots, its size û with W19.9 trillion ($22 billion) of assets û and what UBS perceives to be a strong client focus throughout the Hana empire.
UBS Group does not have other formal arrangements with Hana Financial Group and while Hana may be interested in working with UBS to build its own wealth-management business, no further JVs or stakeholdings are planned, says Neuber.
Taking a majority stake was an accepted part of the plan since the two firms began working together two years ago, with UBS providing informal assistance in return for market intelligence. This reflected in part a desire by both parties to avoid the complications of a 50/50 arrangement. ôYou need someone in control,ö Neuber says.
He stresses, however, that the business will not be run unilaterally by UBS, but as a joint venture. Shin Joon-sang, a 15-year veteran at Hana, has served as CEO at Dimco for the past six months, following a long period in which the old guard of senior executives left or were let go. He will now serve as deputy CEO under Neuber, but other senior positions will continue to be run by Koreans. ôThis is a Korean shop and must be run by Koreans,ö Neuber says, adding the JV is keen to retain the existing staff.
ôI donÆt expect a hiring spree,ö he says, but the firm will look to insert three to five UBS executives as well as make some local hires. In particular it needs new heads for equity and fixed income investment teams, which will be local Koreans, although UBS will add senior marketing people as deputies.
Although large in size, Dimco is considered by market sources as something of a dinosaur. Other top-three asset managers such as the old Hyundai Investment Trust were slimmed down (in HyundaiÆs case after being acquired by Prudential Financial) because a lot of those assets were unprofitable bond and money-market funds.
Neuber says around 80% of UBS Hana AMÆs assets are in fixed income or similar types of products, and 20% in equities or other asset classes such as real estate and infrastructure. It is also largely domestic at a time when aggressive fund houses are introducing international products.
UBS intends to reorient the JV toward international equities, and the team is readying four new products for regulatory approval: East European equities, Latin American equities, Indian equities and a global socially responsible investments fund. ôBut we are not going to aggressively launch hot products,ö Neuber says. ôWe will instead develop a full product range for investors.ö
The biggest test will be moving the new company from under the safety of Hana Financial GroupÆs wing and expose it more directly to competition. ôHopefully the staff will like the challenge,ö Neuber says. UBS also plans to train the JV staff and introduce programs to develop the in-house talent. UBS will also help the JV integrate its risk management and compliance systems with UBSÆ platform.
The appetite of institutional investors for green, social, and sustainable bonds that bring clear environmental and socio-economic benefits shows no sign of waning.
The German insurer has plans for the property sector in Australia and China too.
Global investors are advised to look selectively at Japanese equities as the country recovers from lockdown and continues to improve corporate governance.
Weekly investor roundup: Sun Life weighs second ESG fund in HK; Korea's NPS reduces domestic equity allocation
Sun Life considers launching second ESG fund in Hong Kong as it banks on the growing theme; NPS lowers exposure to large-cap and other domestic shares; Temasek's Vertex Technology Acquisition Corporation becomes first special purpose acquisition company on the Singapore Exchange; and more